Transaction Laundering and Negative Option Scams

The war against transaction laundering continues! The latest battle involves “negative option” sales, where a seller treats a consumer’s silence (that is, their failure to reject an offer) as consent to be charged for goods and services. See 16 C.F.R. § 310.2(w). Where a seller fails to meet federally-mandated disclosure, consent, and cancellation requirements, negative option sales violate the Restore Online Shoppers’ Confidence Act (ROSCA).

In February, the FTC charged F9 Advertising–a company that advertised “risk-free trial” skincare products for a nominal shipping and handling charge–with violating ROSCA. According to the FTC, F9 Advertising failed to disclose that consumers would be automatically charged full-price (more than $90) for the products and be enrolled in monthly auto-shipments, unless they cancelled their order within 14-15 days (which was extremely difficult to do). These shady practices allegedly netted the defendants tens of millions of dollars.

Merchant Allegedly Presented “Clean” Websites to Acquirers

According to the complaint, the defendants used more than 100 shell companies to obtain merchant accounts. They allegedly created clean “bank pages” with prominent disclosures to trick payment processors into believing that they were complying with federal laws. According to the FTC, the defendants did not process payments from the “clean” websites–these sites were used solely for purposes of transaction laundering. The complaint alleges that defendants processed sales from websites with woefully inadequate disclosures that were intended to deceive consumers.

Example of a “clean” website allegedly provided to acquirers:

Example of consumer-facing website:

Transaction Laundering is Rampant in Negative Option Sales

This is not the FTC’s first negative-option transaction-laundering rodeo. In 2017, the agency brought charges against operators of 87+ websites that offered “risk free trials” of teeth whitening products. The teeth-whitening defendants also allegedly used transaction laundering to hide their shady business practices from payment processors. According to the FTC complaint, “front door” websites were submitted to banks for merchant accounts, while “back door” landing pages (available through affiliate links) offered low-cost trials but did not disclose any information about recurring shipments and monthly charges. The 2018 settlement orders imposed a judgment of $92,011,601 and banned the defendants from engaging in negative option sales. Another recent example of FTC action regarding negative option sales can be found here.

As we all know, the battle against transaction laundering never ends! However, utilizing the G2 Merchant Map®—the most extensive, proprietary merchant risk database in the industry―G2 experts are able to generate research and reports that give insight into years of data, including current and historical merchant relationships, merchant risk history, and merchant behaviors that no one else can provide. For additional information regarding G2’s Transaction Laundering Detection solution, please contact us at info@g2llc.com.